Help-to-Buy: who it helps, who it doesn’t and will it be extended?

First introduced in April 2014, Help-to-Buy was a government initiative aimed at boosting the construction of new homes by making it easier for first-time buyers to get funds together to get on the property ladder.

The aim was to stimulate home-building. And it has worked to a point. Latest figures show that almost 30,000 first-time buyers had applied for the grant by the end of May, while the Government has spent €177.5 million incentivising first-time buyers since 2014.

This means that the total spend will likely be north of €200 million by the time of the scheme’s mooted expiration date of December 31st of this year.

As lobbying from estate agents and the property industry steps up a gear, and Taoiseach Leo Varadkar moots that the scheme may be extended in Budget 2020, we take a look at how it works, and the arguments for and against keeping it.

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How does it work?

Help-to-Buy is a tax rebate allowing putative home-buyers to claim a refund of income tax (but not USC or PRSI) and deposit interest retention tax (DIRT) paid in Ireland over the previous four years. You can claim 5 per cent of the purchase price of a new home (or 5 per cent of the completion value of a self-build) up to a maximum of €20,000. If you buy a home worth €350,000 you will get €17,500 towards the cost of your deposit. Typically you never see this money as it goes directly from Revenue to the developer.

There is also a cap on the eligible purchase price of some €500,000 (with a maximum relief of €20,000, as opposed to €25,000) if you’re buying after January 1st, 2017.

Other requirements include that you have to live in the property for five years after you buy or build it or you will risk Revenue clawing back your tax rebate.

When is it due to end?

The scheme was introduced with an end date of December 31st, 2019. However, the Revenue has confirmed that if a first-time buyer submits an application by the end of this year, but doesn’t actually go ahead and purchase their property until 2020, then they will still be eligible for the rebate provided that they make their claim by March 31st, 2020.

Who does it help – and how many?

The scheme is specifically aimed at encouraging construction of new homes, and is only available to first-time buyers.

Figures from Revenue show that since the scheme was launched 20,889 applications have been approved, with a further 7,932 pending since May 31st, 2019. So almost 30,000 buyers have applied for it thus far with the intention of buying.

Recent estimates suggest that almost half of all first-time buyers are now availing of the scheme, and this figure could surge over the coming months amid uncertainty as to whether or not the rebate will be extended. Figures for January to May 2019 show a 17.4 per cent increase in the number of claims approved when compared with the same period in 2018.

Does everyone who gets approved claim the rebate?

One interesting figure thrown up by the Revenue stats is the number of approvals versus the number of claims. While almost 21,000 first-time buyers have had their applications approved by Revenue, just 12,737, or 61 per cent of those approved have actually gone ahead and availed of the rebate to buy a home. This means that the average claim thus far has been €13,935 – equating to an average house purchase price of €278,715.

Who doesn’t it help?

If you’re in a couple and one of you has already bought a home you won’t be able to avail of the rebate if you’re buying together.

Secondly, if you don’t meet the tax criteria – for example because you’ve been living abroad or haven’t been working long enough to pay enough tax – then you will also find yourself excluded.

In addition, while you can build your own home and qualify for the rebate, if you're buying from a developer you must make sure that this developer has been approved by Revenue.

Cash buyers are also excluded. You must have a loan of at least 70 per cent of the purchase price to qualify. Finally, if you buy a house worth more than €500,000 you won’t be eligible for any relief.

Does it help low-income earners buy a home?

It would be reasonable to expect that a scheme aimed at helping first-time buyers purchase a home would be biased towards helping those on lower incomes. However, as the experience of the scheme to date shows, that this hasn’t been the case.

While Help-to-Buy doesn’t specifically exclude those on lower incomes, one of the big criticisms of the scheme is that it has encouraged developers to build homes in the €300,000 to €350,000-plus category, with little activity in the more affordable price ranges.

According to Myhome.ie, which is owned by The Irish Times, the only new properties for sale in Dublin – and thus eligible for the scheme – for less than €225,000, are one-bed apartments in Clonee. So if builders aren’t providing affordable housing the presence of the scheme becomes a moot point for many potential home-buyers.

Is it available nationwide?

Ostensibly Help-to-Buy is a countrywide scheme. However, despite its availability it’s arguable as to whether it has stimulated construction outside of the greater Dublin area. Figures show that Dublin, Kildare and Meath have accounted for 55 per cent of all claims to date, followed by Cork at 10 per cent. In other cities, however, take-up figures have been quite low, with just 417 claims in Limerick since 2014, and 290 in Waterford. The lowest number of claims was in Co Leitrim at just 33.

Should it be extended?

This is the big question. There are many reasons in favour of it with house-building beginning to slow and with rents so high. First-time buyers can’t afford to save enough for a deposit.

Taoiseach Leo Varadkar is understood to have indicated to the Construction Industry Federation that the grant scheme will be extended in October's budget. This comes on the back of lobbying from the property industry, with estate agents such as Sherry Fitzgerald and DNG urging the Government to keep Help-to-Buy, which they see as a "vital incentive" to help first-time buyers get out of the rental market.

The argument against the scheme is the apparent lack of relief offered to low-income workers to help them buy a home. For example, while the Government has spent €35.6 million (or 20 per cent of total) helping those who are buying a house for between €400,000 and €500,000, it has spent less than €12 million supporting those who are buying houses for €200,000 or less.

Is the scheme merely helping those who can afford to buy anyway? More than a quarter (26 per cent) of those who have availed of the scheme were able to buy their new home with a deposit of between 20 and 30 per cent. If they weren’t able to access Help-to-Buy they would surely still be able to buy their home with a deposit of between 15 and 25 per cent.

A similar scheme in the UK has been criticised after it was revealed that more than half of the recipients could have purchased a home without support from the government, and has thus only served to make the housing crisis worse.